News Article

How CoolChip Got $500K from Peter Thiel's Founders Fund: A Salsa Story
Date: Apr 25, 2012
Author: Gregory T. Huang
Source: xConomy ( click here to go to the source)

Featured firm in this article: CoolChip Technologies inc of Somerville, MA

It's rare that chips and salsa lead to a startup funding deal. But this isn't your average startup, and I'm not talking about the usual kind of chips and salsa.

CoolChip Technologies, a Boston-area tech startup looking to make data centers more energy-efficient, raised $500,000 in seed funding earlier this month. What the company didn't reveal, however, was that the money comes from Founders Fund, the San Francisco venture firm started by PayPal co-founders Peter Thiel, Ken Howery, and Luke Nosek. What's more, there is a bit of controversy and intrigue around the startup's technology.

Here's the story behind the financing deal. It begins with CoolChip CEO William Sanchez, an MIT lifer (undergrad, master's, and PhD just weeks away) originally from the Bronx, who started the company in 2010. But long before that, Sanchez discovered salsa dancing as a sophomore in college and says it kept him sane while he adjusted to life in Boston. Over the years, he has kept it up and even formed a salsa teaching and performance company. He says he still dances about twice a month.

Why is this important? Because one of his good friends from salsa, Gleb Chuvpilo (a fellow MIT techie), used to work with Peter Thiel on a few different ventures over the years. For the uninitiated, Thiel—in addition to being PayPal's former CEO—was Facebook's first outside investor. In the interim, he founded a global hedge fund (Clarium Capital Management), helped start an analytics and data visualization software firm (Palantir Technologies), and more recently set up a fellowship to encourage college kids to drop out of school and start new businesses (20 Under 20). Chuvpilo worked with Thiel on finance at Palantir and managed portfolio risks at Clarium Capital.

So when Thiel visited MIT last spring to give a talk at the Stata Center, Chuvpilo and Sanchez signed up to be his "secret service" and guide him around campus. Thiel came to town along with Derik Pridmore, then a Founders Fund principal (also an MIT alum). Sanchez met Thiel, but he talked more with Pridmore, and the two stayed in touch about CoolChip's ideas and business prospects—more on that below—after the visit.

After a few months of meetings, phone calls, and due diligence, Sanchez and CoolChip co-founder Steven Stoddard (another MIT techie) flew out to the West Coast to meet with Founders Fund about CoolChip; their most recent trip was in February. Bruce Gibney is the Founders Fund partner on the deal. (Not to be outdone by his fellow partners, Gibney was an early investor in Confinity, which became, you guessed it, PayPal.)

Of his new investors, Sanchez says, "They get it. The data center efficiency space is really big." But, he says, "It took a new concept to get them in."

At this point, it would be helpful to explain what CoolChip actually does. The company is commercializing what it claims is a better cooling system for computer chips. The idea is to use a new kind of air-based system (not liquid, which tends to be more complex and expensive) coupled to a heat-conduction layer, which stays in contact with the chip. CoolChip has customers already, mostly in the gaming industry, but it is aiming eventually to help cool servers more efficiently in data centers—a huge and growing problem worldwide.

The company's prototype is a 4-inch-diameter contraption that it calls a "kinetic cooler" (see photo, left). When the blades on top spin, they create turbulent air flow, with higher air speeds than that of traditional fans, to dissipate the heat. The net result is that the device "uses surface area more effectively" to cool a chip, Sanchez says. "Not only do we get a big jump in performance"—more heat rejection, less noise, and smaller form factor than traditional heat sinks and fans—"but we got to where we are with the basic economics in mind. We have to make it competitive," he says.

In case you want a deeper dive, the theory of the device is rooted, in part, in Navier-Stokes equations, advanced fluid dynamics, and thermal conduction. (If that sounds a bit like a flux capacitor, well, I didn't build the thing.)

Sanchez says the company's new funding will be used for expanding engineering operations and product development such as integrating better materials, as well as for building up intellectual property. CoolChip says it has patent agreements with MIT and Sandia National Laboratories for the technology and is in the process of transacting the licenses.

Which brings us to a bit of controversy. Last May, the startup won the $200,000 MIT Clean Energy Prize. I won't rehash it all here, but a dispute ensued over CoolChip's rights to the technology and whether the company misrepresented its IP position in the competition; the case was resolved (at least from MIT's perspective) in the company's favor earlier this month.

CoolChip has been based at Geek Offices in Cambridge, MA, but is moving to Boston (near South Station) in the next month or so. Sanchez points out a number of cleantech-related companies that are headquartered in that part of town, including Altaeros Energies, Cambrian Innovation, EnerNOC, FastCAP Systems, OnChip Power, OsComp Systems, and other startups in the Greentown Labs space.

It's still early, but what's the biggest challenge for CoolChip? Getting its dance card punched quickly, says Sanchez.